One of the more difficult issues a family business ever has to contend with is managing the transition of the business to the next generation.
While it should be a time to celebrate the continuation and previous success of the family business, it can too often result in family disputes and the breakdown of relationships.
Unfortunately, succession planning is often low on the priority list of family business owners. Most acknowledge it is important but not urgent and so it often doesn’t get addressed until some major life event, which is too late.
It is easy to understand why because most owners will say they don’t know when or how to start the succession planning process. It’s not a process to be rushed and careful planning is required to ensure a smooth transition.
Succession planning takes time and can be very emotional for family members both in and outside the business, but avoiding it only leads to larger problems down the track.
Establishing a clear plan as early as possible assists in long-term decision making for the business and lessens the risk of disputes or disappointment.
The succession plan needs to put timings or expectations around when and how you plan to retire and deal with issues such as who is most suited to running the business when you retire, and what that means for other members of the family.
Getting all family members involved in the planning process creates a feeling of inclusion, responsibility and ownership, but can require outside assistance to ensure objectivity and control emotion.
One of the most common reasons for disputes arising is that siblings feel there has been inequality and misunderstanding in the process.
Careful consideration is required to ensure the allocation of assets is fair and equitable. If the business operation is going to be shared, it’s vital that families establish a decision-making hierarchy, well understood roles and responsibilities and there is clear and regular communication. This will address any differences in age, experience and mindset.
Another important consideration is ensuring that the succession plan makes financial sense, both for those exiting the business and those continuing.
Can you afford to hand over the business? Can the operation support more than one family, and if not, how will you ensure fairness for multiple siblings?
The structure of the business and financial implications such as who owns assets and the impact of capital gains tax or transfer costs also needs close attention.
While it sounds as easy as stepping out of the business and another family member taking over, it needs careful planning and attention to ensure it is a success.
If you need assistance with your succession plan, contact your local William Buck Business Advisory Director.